Mortgage Guarantor Requirements in Canada

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When you’re in the market for a new home, getting a mortgage is usually a necessary step. But what happens if you don’t have a sizable down payment or have a less-than-ideal credit score? That’s where mortgage guarantors come in.

In Canada, mortgage guarantors are individuals or companies that guarantee to pay your mortgage if you default on your payments. Essentially, they act as a co-signer for your mortgage, providing added security and helping borrowers qualify for an otherwise unattainable mortgage.

Who can be a mortgage guarantor?

A mortgage guarantor can be a family member, friend, or anyone willing to take on the responsibility of guaranteeing the loan. However, not all lenders accept guarantors due to specific eligibility requirements.

What are the eligibility requirements for a mortgage guarantor?

To be a mortgage guarantor in Canada, you must meet certain requirements. These requirements vary by lender, but in general, you will need to:

Be a Canadian citizen or permanent resident
Have a good credit score (usually 650 or higher)
Have a stable income (usually at least $50,000 per year)
Be able to prove that you have the financial means to cover the mortgage payments if the borrower defaults
Be willing to sign a legal agreement with the lender that outlines your responsibilities as a guarantor

What are the responsibilities of a mortgage guarantor?

Agreeing to be a mortgage guarantor is a significant responsibility. You’re essentially promising to pay someone else’s mortgage if they can’t make their payments. This means that if the borrower defaults, you’ll be responsible for paying back the remaining balance of the mortgage.

When becoming a guarantor, anticipate having to provide financial information and undergoing a credit check to be essential. You may also need to provide collateral, such as a lien on your property, to secure the loan.

What are the benefits and risks of becoming a mortgage guarantor?

Benefits

Risks

Helping someone achieve homeownership: As a guarantor, you can help family or friends who may not otherwise qualify for a mortgage due to their credit score, income, or other factors.
Building credit: If the borrower makes timely mortgage payments, a guarantor can boost creditworthiness by assisting with building credit.
Potential financial gain: Your agreement may entitle you to a valuable long-term asset: a portion of the equity in the property.

Financial liability: If the borrower defaults on their mortgage payments, the lender can pursue you for the outstanding amount. This means you could be on the hook for tens or even hundreds of thousands of dollars.
Impact on credit score: If the borrower defaults, the lender will report the missed payments to the credit bureaus, which may negatively impact your credit score.
Strained relationships: If the borrower defaults and you are left to cover the payments, it could strain your relationship with them.
Limited flexibility: Being a guarantor can limit your ability to take out loans or other financial obligations, as lenders may view you as a higher risk.

Why do borrowers need mortgage guarantors?

There are a few reasons why someone might need a mortgage guarantor. For example:

They don’t have a large enough down payment: In Canada, borrowers are required to have a down payment of at least 5% of the home’s purchase price. If they don’t have this amount saved up, a mortgage guarantor can help them qualify for a loan.
They have a low credit score: If a borrower has poor credit, they may not be able to qualify for a mortgage on their own. A mortgage guarantor can provide added security to lenders and help the borrower get approved.
They’re self-employed: Self-employed borrowers may have a harder time qualifying for a mortgage because they don’t have a traditional pay stub. A mortgage guarantor can help them get approved by providing additional financial security to the lender.

In conclusion, mortgage guarantors play an important role in helping Canadians access the housing market. If you’re considering being a guarantor or need one to secure a mortgage, you must understand the requirements and responsibilities involved. With the right knowledge and preparation, you can make an informed decision and achieve your home-buying goals.

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